Some Policy Experiments

The model also allows us to change, by some small amount, the policy variables and analyze what would happen to migration, return and wages in Romania⁹. For instance a decrease of the variable ₁, the cost of residing abroad, possibly associated with better communication, more homogeneous institutions, more integrated markets implies higher migration, lower percentage of returnees and thus a stronger incentive-effect of migration increasing the schooling level. And just the opposite effects would occur if costs increased. For an increase of these migration costs by 20% average wages and average years of schooling in Romania would decrease by 1%.

More interestingly, an increase in the reward to highly educated in the receiving countries, such as a fiscal incentive for high earner in these countries, or a larger decrease in tax rates for highly educated, would generate two opposite effects. On the one hand, as potential emigrants will have larger expected returns to skills in the receiving country, this will produce a stronger education incentive effect in the sending country and will increase average schooling of young. On the other hand, fewer migrants would return, and this would decrease schooling of the old generation in Romania. For a fiscal incentive that only increases returns to schooling from 8% to 8.3%

in the receiving country, the two effects will produce a 2% wage and schooling increase in Romania all due to higher education of young. Finally, the country of origin may introduce some fiscal incentive for highly skilled returnees, corresponding to an increase in the parameter  A fiscal incentive that increase by 30% the premium of returnees, proportionally to their schooling, would double the percentage of returnees (to almost 80% of total migrants). Moreover it would increase the wages of highly educated in Romania and, more importantly, the share of people getting high education. This produces an increase in education and wages by 1-2%. The increase in the schooling-return premium is associated both with a stronger incentive effect that pushes young generations to higher educational achievements, so that more individuals get higher educations, and to a steeper wage profile for highly educated returnees. Certainly, both are a boon for schooling and productivity in the

9The simulations reported below are based on our model. The effects on all schooling and wage variables are available upon request.

sending country.

6.4 Discussion

Three interesting implications emerge from our findings with potentially relevant and direct policy implications.

The first is that migrants and returnees are strongly affected by wage incentives. Countries with a wage structure strongly increasing in skills attract thus the most highly educated immigrants inducing the greatest benefits to their income and productivity. The second is that migrants acquire valuable skills while aboard and receive significant premia upon return (between 12 and 14% of their wage) relative to non movers. Temporary migration is a reasonable strategy to increase one’s lifetime income. Third, for the sending country, under these conditions of selection and return, the average productivity and average human capital, is enhanced when there is a larger share of migrant workers.

One interesting implication of these findings is that in a migration relationship, such as the one described for Romania and the US, it would be beneficial for both countries and for the migrants to allow for temporary working or studying and working visa programs. The strong incentives of the highly educated to migrate and the large premia they would earn upon return make this option very attractive. On the other hand in a migration relationship, such as the one between Romania and Spain, the benefits for both countries may be smaller. Spain receives the less educated workers, still economically useful but less likely to increase productivity and human capital in Spain. Moreover these workers will have less scope for learning and productive increases after return.

A second possibility open to the government of Romania is to provide fiscal incentive, progressive with skills, for people who end their temporary migration period and return¹⁰. Decreasing the marginal tax proportionally with schooling is like increasing the value of  the returns to schooling for people who come back. As shown above, this will increase the incentives of the highly educated to return.

Interesting questions that we are not able to answer with these data is whether the type of selection of returnees will remain the same also for those people who went back to Eastern Europe as a consequence of the great recession (2007-2009) in Western Europe. While the recession in western Europe can be a very important opportunity for Romania and other Eastern European countries to regain some of their expatriates and their enhanced human capital, it is possible that the type of people going back in periods of recession is different from those who returned in periods of normal economic growth. Given the overall positive selection of migrants documented in many studies (e.g. Docquier et al 2010), however, it is likely that returnees, even in recessions, are more educated than non-migrants¹¹.

Finally the reduction of migration costs (e.g. bureaucratic simplification, skill transferability) can be another lever that European countries may use to increase the beneficial impact of temporary migration. Allowing lower

1 0Such incentive schemes were in fact on the political agenda of the Romanian government but never implemented and abandoned in the context of economic recession.

1 1Moreover, recent evidence suggests that the overall effect of the economic downturn on return migration to Eastern Europe in general and to Romania in particular was rather small.

costs and higher probability of migration and introducing more programs for temporary migration between countries should increase flows. Countries with the right reward structure (compensating highly educated and high quality workers) will attract the best combination of them and the workers themselves will increase their skills and their productivity back home. This is beneficial to the sending countries, to the individuals and to the receiving countries. The losers are countries that are not competitive in attracting the highly educated.

7 Conclusions

In this paper we measure empirically the magnitude and the selection of migrants and returnees in the case of Romania. After 1990 Romania has experienced large emigration flows followed by significant rates of return migration. In terms of countries of destination, magnitude and composition of flows, this pattern of migration is representative for Eastern Europe. Our goal was to characterize the selection of migrants and returnees and to test whether their motivations to migrate and return were consistent with a utility maximizing framework.

We used this to assess the effects of migration and return on the level of skills and wages in Romania, allowing also for a education-incentive effect driven by higher expected returns to schooling. Our findings emphasize that return migration is an important phenomenon: about half of the people who migrate do return. Returnees are strongly positively selected, relative to non-migrants, while the selection of migrants depends on the country of destination. Returnees are selected in a similar way as migrants to the countries with highest skill premium (like e.g. the US). Both types of selection (either to migrate or to migrate and return) are consistent with the idea that workers move in accordance to the wage premium they receive. Decisions to return may therefore be part of an optimal strategy to maximize lifetime income. Following the idea that people migrate and return to maximize their utility and that selection at each stage is driven by relative compensation to skills we also perform a simple simulation (based on Peri and Mayr 2009) which suggests that increasing freedom of migration would increase average wage and schooling of the Romanian population through incentives to get educated and the wage-productivity premium to returnees. The overall effects of migration and return on skill and wages of Romanian are positive.

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Tables

Table 1